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After Years of Buybacks, Big Oil is Drilling Again - OILPRICE.COM
BY Irina Slav
For years, analysts from some of the most reputable organizations have been predicting a pending decline in oil demand specifically, but also gas demand. The predictions, notably from the International Energy Agency, were based on projections about a widespread adoption of electric vehicles that would undermine demand for fuels, and a steady and accelerating shift to wind and solar for power generation, undermining demand for natural gas. Only none of these projections materialized.
EV adoption happened at a massive scale only in China, thanks to a steady and abundant flow of subsidies. Yet even that massive adoption of EVs did not lead to peak oil demand in China. It only contributed to a slowdown in demand growth. Elsewhere, EVs have struggled, with carmakers incurring tens of billions in losses—so now some are bringing back diesel models.
Last November, the International Energy Agency walked back its prediction that crude oil demand growth would peak before 2030. Because the IEA’s reports are so closely followed, one could say that the game for Big Oil changed overnight—although in fairness, it had been changing for a while already, as bold transition prediction after bold transition prediction failed. The industry was already pivoting away from its low-carbon experiments and quietly, or not so quietly, refocusing on its core business. Now, it seems the time has come to start thinking big again. And shareholders are fine with it.
“We think investors are likely to focus more on growth than distributions going forwards,” RBC Capital analyst Biraj Borkhataria said in a recent note, as quoted by the Financial Times. The key theme for Big Oil this quarter, the analyst also said, was expanding their oil reserves in order to be able to expand production—despite the persistent near-term forecasts of oversupply.
The reserve replacement issue has been on the backburner in the past few years. That was because the supermajors were trying to reinvent themselves as low-carbon energy suppliers and traders, although their overall success in these ventures has been mixed. All this was done because the global analyst community saw no long-term future in oil and gas. Now, reserve replacement is once again in the spotlight, because oil and gas do, in fact, have a long-term future.
